DS Smith announces $920m US acquisition alongside record results

By Richard Stuart-Turner, Thursday 29 June 2017

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DS Smith is set to make its first entry into the US fibre-based corrugated packaging market after announcing that it has agreed to buy 80% of US packaging firm Interstate Resources from Merpas for $920m (£710m).

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Roberts: "This company really meets the needs that we have to achieve our longer-term objectives"

The London-headquartered packaging giant announced the conditional agreement, which it entered into yesterday (28 June), earlier today alongside its annual results.

DS Smith will take on $226m of Interstate’s acquired cash and debt and has the option to buy the remaining 20% of shares from Merpas over five years.

The acquisition is being funded by a payment of $846m in cash – to be satisfied out of the proceeds of a £280m cash placing, utilisation of up to £400m from a new bridge facility and the rest from existing cash resources – as well as the issue of shares in DS Smith worth $300m to Merpas.

The acquisition is expected to complete by the end of September, subject to conditions including shareholder approval and the expiry of waiting periods under applicable US competition laws.

DS Smith chief executive Miles Roberts said: “In Europe we’ve had success that’s come from really focusing on our customers, understanding their needs and helping them solve the problems that they have.

“We’ve really shared in the value that’s being created and as a result of those relationships they’ve been asking us to help them in new geographies. The US is a huge market that’s changing and developing and they’ve asked us how we could help them there.

“We’ve undertaken a lot of research into the US and this company really meets the needs that we have to achieve our longer-term objectives. We like the people, we like the assets, and we think that working together with this company we can build out from it and build a really successful US business trying to mirror the success we’ve enjoyed in Europe.”

Meanwhile DS Smith reported revenue of £4.8bn in its annual results for the year ended 30 April 2017, up 18% year-on-year. It said this represented a 6% increase under constant currency conditions.

The group said this growth is “inevitably correlated” to the price of paper and that the more relevant measure to describe its business performance is corrugated box volume growth, which was up by 3.2% on a like-for-like basis.

Adjusted operating profit increased by 17%, or by 5% under constant currency conditions, to £443m. The firm said this was driven by the contribution from volume growth as well as the net contribution of businesses acquired and disposed of.

The firm’s pre-tax profit jumped by 31% on the prior year to £264m – up 16% under constant currency conditions.

In the UK revenues increased by 11% year-on-year to £962m and adjusted operating profit in the UK was also up by 11%, to £94m. The company said these local rises were driven by success in the area of e-commerce as well as a good operating performance by its major sites.

“We’re very pleased to have another set of record results and the fundamental reason is that our business model is working – we are winning with our customers, our sales are growing strongly on a like-for-like basis and this has enabled us to continue to invest in the company,” said Roberts.

“Every region we operate in throughout Europe has been in growth. Of  particular note has been the performance of the acquisitions we’ve made over the last few years.

“We’ve acquired into Iberia, Greece, Eastern Europe and Turkey and we’re seeing the benefits coming through not just on the synergies but how we’ve been able to support our customers and how they’re really growing strongly at the top line as well.”

In recent times the company has also acquired UK POS specialist Creo, Denmark-based POS printer Deku-Pack and Portugal-based companies P&I Displays and Packaging and Gopaca while it has also opened a new plant in Erlensee, Germany.

Looking to the future, Roberts said: “Although economic conditions remain uncertain, our innovation-led offering, the scale of our operations, and the momentum in the business gives us confidence in further growth and sustainable returns in the years ahead.”

The board has increased the dividend per share by 19% to 15.2p.

DS Smith’s share price climbed by 30.3p on the announcement to a record high of 487.8p but had settled down to 462.3p at the time of writing – this time last year it was 381.2p.

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